Not all funds will be sheared out of the coronavirus crisis. Some will earn money, even in large amounts, from the famous American hedge fund Pershing Square Capital Management to the Spanish Smart Social Sicav. Your secret? Make successful toppings or be short.
In a public statement, the billionaire William ‘Bill’ Ackman, CEO and manager of the hing hedge fund ’Pershing Square, acknowledges that, on March 23, the fund's hedging process was completed, generating some earnings of $ 2.6 billion, compared to the premiums paid by them and commissions, which had been $ 27 million. In this way, the ‘hedge fund’ It has offset the heavy losses in its portfolio due to the collapse of the markets and, in addition, it has taken a good nip.
Their hedges consisted of purchases of credit protection in various global credit indices 'investment grade' and 'high yield'. "Because we were able to buy these instruments at adjusted levels of credit spreads, the risk of loss of this investment was minimal at the time of purchase," Ackman says.
These hedges had asymmetric payment characteristics, that is, the risk of loss was limited, although their potential for profit was "many multiples with respect to the capital at risk". The ‘hedge fund’ did so out of concern for the negative effect of coronavirus on the United States and global economies, as well as in the equity and credit markets. In fact, early last week Ackman asked Donald Trump to quarantine the country for 30 days to stop the spread of the outbreak.
In its statement, the American manager claims to have reused the profits from the hedges in increasing its positions in Agilent, Berkshire Hathaway, Hilton, Lowe’s and Restaurant Brands. He has also set foot on Starbucks. Currently, the ‘hedge fund’ maintains 17% liquidity even after making these new investments.
BANKRUPTCY IN COMPANIES AND CORRALITOS IN FUNDS
In Spain, who is taking the cat to the water is Smart Social Sicav. In March, in the midst of a pandemic contagion escalation, it has shot up 16.8%, and its profitability in the year rises to almost 21%.
After accumulating such good results in such a short time, its manager, Antoni Fernández, has taken an unprecedented decision: put the portfolio at 100% liquidity until April 1. The reasons are because the market has become very unstable, with a volatility VIX of 85, Political measures of operational restrictions and real possibility of temporarily closing markets. "I can't risk having shareholder funds trapped in such difficult times, where liquidity can be sorely lacking for many families," he says in an extraordinary report.
Fernández believes there is “High probabilities” of seeing bankruptcies of listed and unlisted companies in the coming months and, also, corrals of investment funds that prohibit redemptions.
Until April 1, it will use only 20% of the equity for very short-term or intraday operations "if the opportunity arises" and, from that date, it will reuse up to 80% of the available equity and maintain a 20 % in permanent liquidity to attend to possible needs until the situation returns to normal. As it advances, "we will only invest in maximum liquidity indices where positions can be undone in two clicks".
Its success at this market juncture comes after Strong criticism of his management in 2019. In January, he confirmed that he would maintain his 98% strategy in shorts, 2% liquidity and no longs, and emphasized that "the Nasdaq is a bubble, a fake market", with an estimate that it will drop to 5,000 points. The index falls by around 15% on the year and is already moving at levels of 7,550 points. "Recklessness after ten years of bullish cycle was on the long side, with totally illiquid assets in unsaleable portfolios", criticizes Fernández.